Banking_Regulation_Act

8/7/2019 Banking_Regulation_Act

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P. R. Kulkarni, Managing Director,Fluent Consultatns Pvt. Ltd., Pune 1

Banking Regulation

Act, 1949 (AACS)Lecture & Presentation

ByP. R. Kulkarni

Managing Director

Fluent Consultants Pvt. Ltd., Pune


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About the Act

Act passed in 1949 for regulation of the bankingin India

Made applicable to Co-operative Banks in 1964

As per the Act Reserve Bank of India is theregulatory authority for Banks

Reserve Bank of India has some powers forregulation of Banks under the RBI Act, 1935also


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Commencement

By introducing Section 56 in the BankingRegulation Act, 1949 w.e.f. 1st March,1966 the Act was made applicable to the

Co-operative Banks

Section 56 modifies the provisions of the

Act as applicable to the Co-operativeBanks


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Applicability against other laws

Provisions of the Banking regulation Act, 1949are not in substitution of other laws applicable,unless otherwise expressly said (Section 2 r.w.

56 (b) Act is not applicable to1 Primary Agricultural Society

2 Co-operative Land Mortgage Bank3 Any other co-operative society except as provided by Sec. 56

(Section 3)


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Approved Securities

Approved Securities means securities inwhich a trustee may invest money underapplicable provisions of the Indian Trust

Act, 1882 and the securities approved bythe Central govt. under Section 20(f) of the

said Act

Section 5(a)


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Banking definition

Banking means the accepting, for thepurpose of lending or investment, of thedeposits of money from the public,

repayable on demand or otherwise, andwithdrawable by cheque, draft, order or

otherwise

Section 5(b)


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Banking Policy

Banking Policy means policy specified by RBI fromtime to time in the interest of

- Banking system

-

Monitory stability- Sound economic growth

- Interest of depositors

- Volume of deposits and other resources of the bank- Efficient use of the deposits and resources

..Section 5(ca)


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Demand and Time Liabilities(DTL)

Demand Liabilities means liabilitieswhich must be met on demand and

Time Liabilities means liabilities

which are not demand liabilitiesSection 5(f)


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Secured and UnsecuredLoan or Advance

Secured Loan or Advance means a loanor advance made on the security of assetsthe market value of which is not at any

time less than the amount of such loan oradvance

and Unsecured Loan or Advance meansa loan or advance not so secured

Section 5(n)


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Act to supersede By-law etc.

If any provision in the By-law or anyresolution passed by the Board or theGeneral Body or any body entrusted with

the management of the society by theBoard contradicts the provisions of the

Act, then the same are void and the Actsupersedes

Section 5A r. w. 56(d)


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Business bank can doSection 6(1) and 6(2) r.w. 56(b)

Borrowing, raising or taking of money Giving advance

Bills business L/C , Bank Guarantee, Indemnity

Foreign exchange Providing safe deposit vaults

. Contd


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Collecting and transmitting money Managing, selling and realizing any

property that may come into thepossession of the bank in satisfaction orpart satisfaction of any of its dues

Contd


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Acquiring, holding and dealing with anyproperty or any right, title or interest in anysuch property that may form the security

or part of the security for any loans oradvances or which may be connected withsuch security

Undertaking and executing trusts Contd


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Doing all such other things as areincidental or conducive to the promotion oradvancement of the business of the bank

Any other business the Central Govt. mayby notification specify as a allowedbusiness

Banks are prohibited to do any otherbusiness


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Bank holding acquired immovableproperty

The property acquired by the bank in satisfaction of the

whole or part of the dues can be disposed by the bankwithin seven years from the date of acquisition

The period can be extended by RBI up to five more

years if doing so is in the interest of the depositors Bank can use the property for its own use and may

retain it for self use and then it may not be disposed

Section 9 r. w. 56 (fii)


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Minimum paid up capital

No Co-operative bank shall commence orcarry on the business of banking unlessthe aggregate value of its paid-up capital

and reserves is not less than Rs. 1.00 lac Value means the real and exchangeable

value and such value drawn by theReserve Bank shall be final

Section 11 r. w. 56 (h)


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Cash Reserve (CRR)Section 18 r. w. 56 (j)

Every bank is required to keep cash reserve,with itself or by way of balance in the currentaccount with RBI or Central / District Co-operative Bank or net balance in all such way, of

minimum prescribed % amount of its DTL as oflast Friday of fortnight

A return about this has to be submitted to RBIbefore 15th of each month about alternate Friday

. Contd


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Cash Reserve (CRR)Section 18 r. w. 56 (j)

For schedule Co-operative banks the minimumcash reserve prescribed is 5% under Section42(1) of the Reserve Bank of India Act, 1935

For non-schedule UCBs cash reserve is 3% asper Section 18 r.w. 56(j) of the BankingRegulation Act, 1949

Master Circular on this issue isUBD.CO.RET/MC No 12/12.33.000/2006-07dated Nov. 1, 2006


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Fortnight for CRR

Fortnight means period from Saturday tothe second following Friday

Section 18 r. w. 56(j)(b)


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Restriction on holding shares of other

Co-operative society

Co-operative bank shall not hold shares in any other co-

operative society, except to the extent and on conditionsas prescribed by RBI

The exception allowed by the Act is holding shares of

central or State co-operative bank to which the investingbank is affiliated

Other exception allowed by the RBI is for holding sharesof Associations and Federations of Banks of which theinvesting bank is member

Section 19 r. w. Section 56(k)


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Restrictions on loans and advancesNo co-operative bank shall grant any loans or

advances,1. On the security of its own shares or2. To any of its directors or

3. To firms or private companies in which any ofits directors is interested as partner ormanaging director or

4.

To any individual in case a director is aguarantorSection 20(1) r. w. Section 56(l) contd.


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Restrictions on loans and advances

Every co-operative bank is requiredto file a monthly return in prescribedform to RBI about unsecured loansand advances to its directors andtheir related accounts

Section 20(2) r. w. Section 56(l)


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Restrictions on loans and advances If from the return submitted by the bank

RBI is of the view that the loans oradvances are to the detriment of the

interests of the depositors, the RBI mayprohibit the bank from granting any suchfurther loans or advances or give such

order as it deems fitSection 20(3) r. w. 56(l)


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Restriction on remitting director related

debtsSection 20-A r. w. 56(m)(i) and (ii)

No co-operative bank shall, except with the priorapproval of the RBI, remit in whole or part anydebt due to it by,

1. Any of its past or present director

2. Any firm or company in which any of itsdirectors is interested as director, partner,

managing agent or guarantor3. Any individual if any of its director is his partner

or guarantor


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Rate of interest not subject to scrutiny by

Courts

A transaction between a bank and itsdebtor shall not be reopened by any Courton the ground that the rate of interest

charged by the bank is excessive

Section 21-A


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Licensing of banks

No co-operative society shall carry onbanking business in India unless it is acooperative bank and holds a license

issued in that behalf by the RBI, subject tosuch conditions as the RBI may deem fit.

Section 22(1) r. w. 56(o)(i)(b)


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Branch licensing

No co-operative bank shall without priorpermission of RBI open new place ofbusiness or change otherwise than within

the same city, town or village, the locationof an existing place of business.

(This is subject to a proviso)

Section 23 r. w. 56(p)(i)


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Branch licensing - exception No permission as contemplated for branch

licensing under section 23(1) is required fromRBI if there is opening of place of business, in

the area where the bank already has a place ofbusiness, for less than one month for thepurpose of affording banking facilities to the

public on the occasion of an exhibition, aconference or a mela or any like occasion

Section 23 r. w. 56(p)(i) proviso (a)


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SLR(Statutory Liquidity Ratio)

Bank shall maintain unencumberedapproved securities, valued not exceedingthe current market price, or an amount

which shall not be less than 25% of thetotal of its demand and time liabilities

(DTL)Section 24(1) r. w. 56(q)(i) contd.


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SLR(Statutory Liquidity Ratio what is included)

1. Balances maintained in India in currentaccount/s with RBI

2. Any balance maintained with central co-

operative bank of the district concernedor with the State co-operative bankconcerned

Contd.


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SLR(Statutory Liquidity Ratio what is included)

3. Gold valued at a price not exceeding thecurrent market price

4. Unencumbered approved securities

5. Cash maintained by the bank with itself(only for non-scheduled banks)

Section 24 (2) and (2A) r. w. 56(q)(ii)


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SLR Reporting to RBI Every bank is required to furnish a prescribed monthly

return to RBI not later than 21 days after the month endgiving position at the close of alternate Fridays of thatmonth about,

- Particulars of assets maintained in accordance with

section 24 and- Demand and term liabilities- If any Friday is a holiday next days position is required

to be given- RBI has powers to call this position on daily basis also

Section 24(3) and (5) r. w. 56 (q)(iii)


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SLR Default - Penalty If there is default in maintaining the SLR, a

penalty of interest @ 3% p. a. above bank ratefor per day of default is imposed on thedefaulted amount

If the default continues or occurs on nextalternate Friday the penal interest rate isincreased to 5% p. a.

The penalty payable as above shall be payablewithin 30 days from the date of demand by RBISection 24(4) and (6) r. w. 56(q)(iv)


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SLR Default - Penalty

If RBI is satisfied that the SLR default isknowingly and willful every director,manager or secretary responsible shall be

punished with fine of Rs. 500/- and furtherfine of Rs. 500/- for each alternate Friday if

default continuesSection 24(7)


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SLR Default - Exemption

If the RBI is satisfied on the applicationmade by the bank that there are sufficientgrounds for not maintaining the SLR the

RBI may not impose penalties

Section 24(8)


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Unclaimed deposits Every bank is required to submit to RBI within 30

days of close of each year a return in prescribedformat and manner of all accounts which have

not been operated upon for ten years In case of fixed deposit accounts the period of

ten years shall be calculated from the date of

maturitySection 26 r. w. 56(ri)


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Monthly and other returns

RBI powers

Every bank is required to submit a monthlyreturn in prescribed form and manner,before the close of succeeding month to

which it relates, showing the assets andliabilities of the bank at the close of last

Friday of the month to which it relatesSection 27(1)


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RBI powers to call information RBI has powers to call at any time such

statements and information in suchmanner and form as it deems fit relating to

the business and affairs of the bank RBI has also powers to call for half yearly

information regarding the investment of

the bank and classification of advancesSection 27(2)

RBI bli h i f i


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RBI powers to publish information

about bank

RBI has powers to publish any informationobtained by them under the BankingRegulation Act, 1949 (aacs) in such

consolidated form as it deems fit ifaccording to RBI doing so is in the public

interestSection 28


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Accounts and Balance-sheet Every co-operative bank is required to prepare

balance-sheet and profit and loss account at theexpiration of the year ending with 31st March in

the form set out in the Third Schedule of the Act The balance-sheet and profit and loss account

needs to be signed by the principle officer of the

bank and at least three directorsSection 29(1) and (2) r. w. 56(s)


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Accounts and Balance-sheet

The balance-sheet and profit and lossaccounts along with auditors report arerequired to be published in the manner as

prescribed by RBI within six months fromyear end and three copies thereof are

required to be submitted to RBI as returnsSection 31 r. w. 56(t)(i)

Production of documents


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of confidential natureSection 34-A(1)

Notwithstanding anything contained in any law,no bank can be compelled by any authority, inany proceeding, to produce or give inspection ofany of its books of accounts or documents orfurnish or disclose any information when thebank claims that such document or information

is of confidential nature.

Contd. ..



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of confidential natureSection 34-A(1)

Bank can refuse production or inspectionof document or the furnishing ofinformation relating to,

1. Any reserve not shown as such in itspublished balance-sheet

2. Any particulars not shown in the balance-sheet in respect of BDDR or other usualor necessary provisions

Production of documents of confidential


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nature RBI interventionSection 34-A(2)

If in any proceeding a question arises asto whether any reserve or provision statedabove at section 34A(1) should be taken

into account or not, the authority beforewhom the proceeding is pending may refer

the matter to RBI.Contd. .



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nature RBI interventionSection 34-A(2)

RBI shall after considering the soundbanking practices and relevantcircumstances, furnish to the authority a

certificate stating how much amount theauthority should consider or not consider.

The certificate issued by the RBI shall be

final and shall not be called in question inany proceeding.


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Inspection of Banks Section 35

35(1) RBI on its own or if directed by theCentral Govt. may cause a inspection tobe made by one or more of its officials of

any bank and its books of accounts. Oninspection RBI has to give a copy of the

report to the bank and may give a copy tothe Registrar of Co-operative Societies


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35(1A)(a) Additionally RBI may make a

scrutiny of the affairs of the bank and its booksof accounts

35(1A)(b) Copy of the scrutiny report may begiven to the bank if requested so by the bank.But if any action against the bank is

contemplated based on the scrutiny the reporthas to be given to the bank


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35 (2) Every director, officer and employee of

the bank shall produce to any officer makinginspection under 35(1) or scrutiny under 35(1A)all such books, accounts, documents in hiscustody or power and furnish him any statementand information relating to the affairs of the bank

as the said officer may require and in such timeas asked


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35(3) any person making the inspectionunder section 35(1) or scrutiny under35(1A) may examine on oath any director,

officer or employee and administer oath tohim.


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35(4) If the RBI is of the opinion that theaffairs of the bank are being conducted tohe detriment of the interests of the

depositors, it may report it to the CentralGovt. and the Central Govt. may aftergiving opportunity to the bank prohibit thebank from receiving deposits


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35(5) The Central Govt. may after givingreasonable opportunity to the bank publishthe report submitted by RBI or part of such

report as may be necessary

Directions from RBI


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Directions from RBI

RBI can issue directions to any co-operative bank or classof co-operative banks if RBI is satisfied that doing so isnecessary,

1. In the public interest or

2. In the interest of banking policy or

3. To prevent the affairs of the bank being conducted in amanner detrimental to the interests of the depositors orprejudicial to the interests of bank or

4. To secure the management of the bank generally,

and the banks are bound to follow the directions.Section 35A r. w. 56(x)

RBI powers to depute officers at Urban


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p p

Co-operative BankSection 36-A(1)(d) r. w. 56 (z)

If RBI is satisfied that for reorganization or

expansion of co-operative credit on sound linensit is necessary so to do, by an order in writingand on terms ad conditions may

1. Depute one or more officers to watch theproceedings at any meeting of the Board ofDirectors or any other body constituted by it and

speak in the meeting and give advice as theofficer may deem fit contd. ...


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Certain activities


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in relation to bank punishableSection 36-AD

Following activities are punishable withsix month imprisonment or fine or both,

1. Obstructing any person from lawfully

entering or leaving any office or place ofbusiness of the bank or from carrying on

any business thereContd. ..

Certain activities


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in relation to bank punishableSection 36-AD

2. Holding within the office or place of

business of the bank, any demonstrationwhich is violent or which prevents or is

likely to prevent the transaction of normalbanking business

3. Acting in any manner calculated to

undermine the confidence of thedepositors in the bank


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Power to suspend business of bank


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MoratoriumSection 45(3)

Except as provided in the directions givenby the Central Govt., no bank against

whom moratorium orders are issued shallmake any payment to any depositor or

discharge any liability or obligation to anycreditor


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Preservation of record by bank The Central Govt., after consultation with

RBI makes the rules specifying theperiod for which the bank shall,

1. Preserve its books, accounts and otherdocuments and

2. Preserve and keep with itself different

instruments paid by itSection 45Y

Return of paid instruments to


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p

customers

If the customer asks, before the expiry of

preservation period, for return of originalinstrument issued by him and paid by thebank the bank has to give the same to himkeeping a copy with the bank

Cost of copying has to be recovered by

the bank from the customerSection 45Z

Nomination for Deposit


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Nomination for DepositSection 45ZA

When the deposit is held by the bank tothe credit of one or more persons, thedepositor or all the depositors together

may nominate in the prescribed mannerone person to whom in the event of deathof depositor or all depositors the amount ofdeposit be returned by the bank

Contd. ..



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Nomination for DepositSection 45ZA

After the death of depositor/s the nomineebecomes entitled to all the rights of thedepositor/s to the exclusion of other

persons Nomination once made can be cancelled

or modified by the depositor/s in theprescribed manner



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Nomination for DepositSection 45ZAs

If the nominee is a minor the depositor/smaking nomination is entitled to appoint aguardian for the minor till his/her minority

Payment made by the bank in accordancewith the nomination under section 45ZA

gives full discharge to the bank for itsliability in respect of deposit

Notice of claim on deposit


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Notice of claim on depositSection 45ZB

No notice of the claim of deposit, other than the

person or persons in whose name the deposit isheld, shall be receivable by the bank, nor shallthe bank be bound by the notice even if

expressly given. Bank shall, however, take a note of the decree,

order, certificate or such other document from

the competent court, having jurisdiction, aboutthe deposit.

Nomination Safe Custody and


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y

Locker

For safe custody articles provisionsregarding nomination and notice aresimilar to that for deposit are at section

45ZC and 45ZD For safety lockers provisions regarding

nomination and notice are similar to thatfor deposit are at section 45ZE and 45ZF


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Penalties For giving false information to RBI, for not giving

the information or called documents, forcontravening the directives issued by RBI andsuch other issues the Act provides elaborate

penal provisions at section 46 r. w. 56(zc)prescribing the imprisonment or fine or both tothe erring staff or director of the bank.

RBI has also powers to impose monitorypenalties on the bank under section 47A


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Protection to Central Govt. / RBI No action, suit, proceeding or case can be

initiated in any court against the CentralGovt. or RBI and its officers when they

have taken any action in good faith underthe Banking Regulation Act, 1949

Section 54


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Lecture & Presentation

By

P. R. KulkarniManaging Director

Fluent Consultants Pvt. Ltd., Pune

Banking_Regulation_Act

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